Russia war on Ukraine to push up metal cos cost, squeeze profit margin

Suresh P. Iyengar | | Updated on: Feb 28, 2022
FILE PHOTO: Molten nickel is poured at Nadezhda Metallurgical Plant of the Norilsk Nickel company in the Arctic city of Norilsk January 23, 2015. REUTERS/Polina Devitt/File Photo

FILE PHOTO: Molten nickel is poured at Nadezhda Metallurgical Plant of the Norilsk Nickel company in the Arctic city of Norilsk January 23, 2015. REUTERS/Polina Devitt/File Photo | Photo Credit: Reuters Staff

Increase in production cost to impact demand

The Russian invasion into Ukraine is all set to push up operational cost of domestic metal companies and impact the bottomline as any attempt to pass on the incremental cost will suppress the demand further.

Constrains in the global energy supply chain has already led to a spike in the international crude and gas prices. This will indirectly lead to rise in key raw material prices and inflate the cost of production across the economy. However, expectation of spike in benchmark global metal prices was a sentiment booster and led to BSE Metal index gaining five per cent on value buying across sectors.

Raw materials price to spike

Most metal companies are dependent on imports for sourcing raw materials including coking coke, nickel, molybdenum, manganese, titanium, boron and cobalt. Russia produces about 6 per cent of the world’s aluminium and accounts for about 7 per cent of global nickel mine supplies.

Vinit Bolinjkar, Head of Research, Ventura Securities said the freight cost for steel companies has already increased due to higher oil and gas prices. Now the key raw material prices including coking coal are expected to witness a sharp rise.

Global steel demand

The war has delayed the pandemic battered global economy, which has not only impacted the global steel demand but also reduced the possibility of higher input cost being passed on to consumers, It was a double-whammy on profitability, he said.

Rajnath Yadav, Research Analyst, Choice Broking said Russia is also one of the key players in the global market of nickel, aluminium, copper, palladium and platinum. Any restrictions on trade will act as a positive trigger on metal prices with nickel already trading with positive bias since the start of the conflict, he added.

However, he said if the consumer demand lags it will be difficult for metal producers to pass on the cost. Most of the key consuming sectors have already taken series of price hike in the last three months. If the crisis does not get resolved in next one month, then it will have a cascading impact on the global economy, he added.

Published on February 28, 2022
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